Am sitting at HIMSS 2009, an annual conference for the health information technology community. The health IT community is buzzed on anticipation of the 19 billion dollar stimulus bill dedicated to health IT, a whopping 3% of the overall stimulus package. We don't know how that money will be spent -- the federal govt will soon set the new legal policies, standards, and incentives, for this market.

With such a significant federal investment into HIT, still, little institutional investments are going to health IT companies. To understand why that is, here's a little background. First, a little about the state of the private equity landscape: conventionally, investors invested in a private company because they'd get a 20-45% (typical) discount versus a public company. Currently, for a variety of reasons, the situation has reversed - there is now a "private company premium" - private companies are valued at a higher premium than public companies. Hence, you see the institutional investors putting their money into public companies, or, holding on to their cash to wait out this bubble. One of the venture firms conducted a valuation of 100 health IT companies and found those companies to be valued at about 2.7x-3.8x revenue. Not bad, that's only 25% down. Yet, institutional investors still aren't investing in health IT. Why? because they don't see any blockbuster health IT companies. And why are there no blockbusters? First, these companies are IT services companies, which make them lifestyle companies, not blockbuster companies. Also because of the difficulties of the market - the ROI is dubious, the sales cycles are so long that it's crippling for company cash flow, and healthcare clients are so different from each other that implementation strategies are nontransferable from one client to another. The key type of health IT company that could become blockbusters are companies that build platforms for health data interoperability and analytics. VC firms are looking at data interoperability and data analytis companies but they haven't found a winner.

Clayton Christensen, in his book Innovator's Prescription, said something to the effect that government should expedite the process of health IT integration but not set the rules. Makes sense. In the meantime, health IT companies wade in the realities of waiting for our federal government to set the rules for health...

So, to recap, 1) no HITs are worth investing, 2)government shouldn't be setting the agenda but they are, 3) there is no star company to implement health IT integration....am I missing something or is this preface for a disastrous story of our path to health IT from now till 2015?  But to end on a happy note, there is 19B out there, so start economically aligning your sales models and be ready to move when the US government releases the rules and agendas for the path ahead.